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BL Research Bureau

HDFC Bank has displayed a good set of numbers after lacklustre numbers from private sector peers such as Kotak Mahindra Bank and ICICI Bank. Though the bank’s June quarter for 2008-09 is not strictly comparable with previous periods because of the merger with Centurion Bank of Punjab (CBoP), the latest numbers were closely watched, given concerns about the merger’s impact on HDFC Bank.

The bank’s net profit has grown 44 per cent over last year, though it has stayed flat sequentially. The total income has grown by 60 per cent and net interest income has grown by 75 per cent. The ‘other income’, which has depressed profits for PSU banks, was flat for HDFC Bank. The Rs 77.6-crore revaluation loss taken on the bond portfolio was made up by buoyancy in fee income. The operating expense has also increased by 66.5 per cent, with employee pay and provisions increasing by 90 per cent, possibly due to the merger. The balance sheet has grown by 59.5 per cent to Rs 1,68,599 crore mainly due to the merger with CBoP, with overall growth in advances at 79.8 per cent.

The gross NPAs did increase, by 20 bps as a percentage of gross advances, probably on account of a higher contribution from CBoP and a higher proportion of retail loans in its own books (58 per cent as of March 31, 2008). The other key parameters of HDFC Bank, which have shown a deterioration after the merger are the proportion of low-cost deposits (declined sharply from 54.5 per cent to 45 per cent), NIMs (down from 4.4 per cent to 4.1 per cent) and Capital Adequacy Ratio (13.6 to 12.2. per cent). HDFC bank’s basic earnings per share has fallen from Rs 13.3 to Rs 11 on a diluted basis.

The merged entity being the country’s seventh largest bank may have a challenging phase ahead, as it has to not only weather upward pressure on interest rates and rising yields, but may also have to integrate CBoP. Though the merger has weighed on HDFC Bank’s earnings in the near-term, long-term benefits from the merger may flow in from CBoP’s extensive branch network.

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